For: distributor purchasing teams, warehouse managers and dealership owners
The decision: Which items should consume warehouse cash and space?
60-second answer: Review demand, replenishment, service criticality and contribution together. Separate project equipment, demonstrations and service parts. Inventory turns help diagnose a decision; no single turnover target determines every stocking policy.
Use a consistent inventory measure
Inventory turns are cost of goods sold for a defined period divided by average inventory at cost over that period. Use consistent dates and cost treatment. Period-end stock alone can misrepresent an operation with seasonal receipts or large project orders; use a representative series of inventory balances where available.
Keep equipment, parts and demonstration stock distinguishable. A part held to keep a customer operating has a different purpose from a showroom machine or a unit bought for an identified project. Review slow stock within that purpose before deciding it is waste.
| Factor | Records to pull | Policy question |
|---|---|---|
| Demand | SKU-level orders, requests, lost sales and cancellations | Is demand repeatable, committed or speculative? |
| Replenishment | Actual lead times and supplier delivery variation | How long must available stock cover? |
| Service importance | Installed base, failure records and substitute options | What happens if this item is unavailable? |
| Economics | Landed cost, realized margin, space and carrying expense | Does the expected contribution justify the commitment? |
| Obsolescence | Revision notices, compatibility and return terms | How could this item lose its use or resale route? |
| Inventory position | On hand, allocated, backordered and confirmed inbound | What is really available for a new customer? |
Set a policy by purpose
- Repeat-demand stock: define replenishment from observed demand and actual lead times.
- Critical service parts: weigh downtime consequences and alternatives as well as turns.
- Demonstrations: name the sales question, review date and resale plan.
- Project equipment: match purchasing to commitments and site readiness.
- Special configurations: consider order-only status when speculative holding is hard to justify.
A basic reorder planning model is expected demand during replenishment lead time plus a chosen safety allowance. That allowance should reflect variability, service needs and the cost of holding stock. Do not treat a simple average as a guarantee of availability or apply a generic “stock deep” instruction to all wear parts.
An illustrative replenishment calculation
If an item’s planning demand is two units per week and its replenishment lead time is three weeks, expected demand over that lead time is six units. Any additional buffer needs a separate rationale. These numbers are an example, not a recommended stocking level. Compare the target with on-hand stock less allocations and backorders plus relevant confirmed inbound supply.
Make aging stock a decision list
For each aging position, record the reason it remains, current condition, realistic sale options and cash obligations. Evaluate a normal sale, customer-specific bundle, supplier return or approved clearance on expected net recovery. Discounting without checking funded-inventory restrictions, compatibility or delivery cost can hide the loss rather than resolve it.
Review the chosen policy after material lead-time or model changes. Track fill performance, stockouts, aged value, turns and realized contribution together. A higher turnover number accompanied by unserved customers may be the wrong improvement.
What to do this week
- Segment the inventory by purpose.
- Review the largest cash positions and critical service gaps.
- Set a documented policy and review trigger for each priority SKU.
- Assign an owner and next action to aging exceptions.
Use the financed-inventory cash calendar where stock is funded and the showroom review for demonstration assets. This is an FEX management framework.
